Parliamentary panel seeks MCA views on NFRA’s performance, budget utilisation
New Delhi, February 16, 2025
The Standing Committee on Finance, led by BJP MP Bhartruhari Mahtab, has sought detailed written responses from the Ministry of Corporate Affairs (MCA) regarding the functioning of the National Financial Reporting Authority (NFRA), the country’s sole independent audit regulator.
The House Panel has specifically focused on NFRA’s budget allocations, its impact on audit quality, and its overall effectiveness of the audit regulator since its inception, sources said. This exercise relate to Demands for Grants for 2025-26 and issues connected to it, they added.
Established in October 2018, NFRA serves as an independent regulatory body overseeing auditing and accounting standards in India.
The committee’s scrutiny comes in light of recent budgetary adjustments and aims to assess NFRA’s contributions to enhancing financial reporting and audit practices.
Budgetary allocations and revisions
The committee has highlighted fluctuations in NFRA’s budget allocations over recent years. For the fiscal year 2023-24, the initial allocation was ₹ 43.20 crore, which was later revised downward to ₹ 38.50 crore. The House Panel has sought clarification on the reasons behind this reduction and has requested details on the actual expenditure incurred during the period.
Looking ahead, the budget estimate for 2025-26 has been increased to ₹ 47.00 crore, up from ₹ 44.00 crore in 2024-25. The Parliamentary Panel is keen to understand the rationale behind this proposed increase and how the additional funds are intended to be utilized, sources added.
Assessment of NFRA’s impact on audit quality
A central aspect of the committee’s inquiry pertains to the tangible outcomes achieved by NFRA in the past five years. The members are interested in measurable improvements in audit quality and financial reporting that can be directly attributed to NFRA’s interventions and increased budgetary support.
Since its establishment, NFRA has been active in monitoring and enforcing auditing standards. The committee seeks comprehensive data on the number of orders issued against entities for auditing lapses and how these actions have influenced the overall quality of audits in the industry.
Sector-specific challenges and regulatory actions
The House Panel also wants to ascertain whether NFRA has identified particular sectors where audit quality has been notably deficient.
Understanding these sector-specific challenges is crucial for tailoring regulatory measures. The Parliamentary Panel has sought information on the common types of lapses detected in audits and the specific actions taken to address these issues.
Ensuring compliance and future strategies
Ensuring adherence to its directives is vital for NFRA’s regulatory efficacy. The Parliamentary Panel is interested in the mechanisms NFRA employs to monitor compliance with its orders and the steps taken to verify that audit firms and companies implement corrective measures post-intervention.
Looking forward, the Panel also wants to know the additional enforcement strategies NFRA plans to adopt to tackle ongoing challenges in audit quality. This includes understanding the quantum of funding requested to support these initiatives and how these resources will be allocated to achieve the desired outcomes.
Recent initiatives and proposals
Recent reports indicate that NFRA is proactively working to enhance audit quality. Initiatives such as the publication of guidelines for auditors and audit committees have been introduced to foster better communication and understanding between stakeholders.
Additionally, NFRA has proposed the introduction of annual transparency reports for audit firms. The committee has requested an update on the status of this proposal and any actions initiated against firms or entities found in violation of auditing standards, sources said.
Evaluating penalties and organisational independence
The effectiveness of financial penalties as a deterrent for audit lapses is another area of interest for the standing committee. They have sought insights into how NFRA ensures compliance with imposed penalties and whether the authority possesses adequate resources to monitor adherence effectively.
In light of observations from the Solicitor General regarding NFRA’s independence in making recommendations to the government, the standing committee is examining the distinctions between NFRA and the Institute of Chartered Accountants of India (ICAI).
This includes exploring how their differing structures and funding sources influence their approaches to rule-making and professional standards, especially concerning ongoing discussions over auditing standards.
[The Hindu Business Line]
